Microsoft finds Google means business

Date: December 26 2012

Quentin Hardy

SAN FRANCISCO: It has taken years, but Google seems to be cutting into Microsoft's stronghold — businesses.

Google's software for businesses, Google Apps, consists of applications for document writing, collaboration, and text and video communications — all cloud-based, so that none of the software is on an office worker's computer. Google has been promoting the idea for more than six years, and it seemed that it was going to appeal mostly to small businesses and tech start-ups.

However, the notion is catching on with larger enterprises. In the past year Google has scored an impressive string of wins, including at Swiss drugmaker Hoffmann-La Roche, where more than 80,000 employees use the package, and at the US Interior Department, where 90,000 use it.

One big reason is price. Google charges $US50 ($A48) a year for each person using its product, a price that has not changed since it made its commercial debut, even though Google has added features. This year, for example, Google added the ability to work offline, as well as security and data management that comply with more stringent European standards. That made it much easier to sell the product to multinationals and companies in Europe.

Many companies that sell software over the cloud add features without raising prices, but also break from traditional industry practice by rarely offering discounts from the list price.

Microsoft's Office suite of software, which does not include email, is installed on a desktop PC or laptop. In 2013, the list price for businesses will be $US400 per computer, but many companies pay half that after negotiating a volume deal.

At the same time, Microsoft has built its business on raising prices for extra features and services. The 2013 version of Office, for example, costs up to $US50 more than its predecessor.

"Google is getting traction" on Microsoft, said Melissa Webster, an analyst with IDC. "Its 'good enough' product has become pretty good. It looks like 2013 is going to be the year for content and collaboration in the cloud."

Microsoft has also jumped on the office-in-the-cloud trend. In June 2011, it released Office 365, and now offers its software in both a cloud version and a hybrid version that uses cloud computing and conventional servers.

Office 365 starts at a list price of $US72 a year per person, and can cost as much as $US240 a person annually in versions that offer many more features and software development capabilities. Microsoft says it offers more than Google for the money, but the product has not won many converts from Google.

In a recent report, Gartner, the information technology research company, called Google "the only strong competitor" to Microsoft in cloud-based business productivity software, though it warned that "enterprise concerns may not be of paramount importance to the search giant''.

Google is tight-lipped about how many people use Google Apps, saying only that in June more than 5 million businesses were using it, up from 4 million in late 2011. Almost all these companies are tiny, but in early December Google announced that even companies with fewer than 10 employees, which used to get Google Apps free, would have to pay.

Google's revenue from Apps, according to a former executive who asked not to be named, amounted to perhaps $US1 billion of the $US37.9 billion Google earned in 2011.

Shaw Industries, a carpet maker in Georgia with about 30,000 employees, switched to Google Apps this year for communication tools such as email and video-conferencing. Jim Nielsen, the company's manager of enterprise technology, calculated that using Google instead of similar Microsoft products would cost, over seven years, about 13 times less than Microsoft's price.

Shaw is a subsidiary of Berkshire Hathaway, run by Warren Buffett, but the close friendship of Buffett and Microsoft founder Bill Gates did not sway Mr Nielsen. "When you add it up, the numbers are pretty compelling," he said.

In addition to the lower price, Google has simplicity in pricing. Mr Nielsen said he had to sort through 11 pricing models to figure out what he would pay Microsoft.

But his prime motive in choosing Google, he said, was online collaboration. "As people in their daily lives become more electronically social, they want to bring that into the office," Mr Nielsen said. "Video is more appealing than a written letter."

Google, he said, was "constantly making it better for teams to work, inside and outside the company, with controlled access".

Microsoft says it does not yet see a threat. Google "has not yet shown they are truly serious", said Julia White, a general manager in Microsoft's business division. "From the outside, they are an advertising company."

Even though Microsoft sells a similar product, she said most companies did not want to depend exclusively on clouds for documents and communication. Microsoft now had some of its own workers entirely online, she said, while others used both local computers and the cloud, to get a feel for how various companies work.

Although she would not give numbers, Ms White said Office 365 was "on track to be our fastest-growing business". She said that Google, to be a threat, would need to "provide a quality enterprise experience" in such areas as "privacy, data handling and security".

But according to the General Services Administration, out of 42 US federal government contracts for which Google and Microsoft competed in 2012, Google won 23 deals, and Microsoft 10. The rest went to another company, Zimbra, which is owned by VMware, a maker of cloud software.

Microsoft's biggest and most profitable sector, its business division, brought in nearly $US24 billion in the 2012 financial year that ended in June. Almost none of that came from Office 365, but from the familiar older-style software that depends on computers within the corporation.

As the two behemoths slug it out in the enterprise market, their cloud-computing software is changing the way businesses operate. Internet-based computing makes it easier to communicate both within and outside a company. Fixing software and adding features can be done automatically, the way consumers get the latest version of Facebook when they go to its site.

"People were looking for cheap email at first, but now it's about collaboration, calendaring and data storage online," said Ms Webster of IDC. Over time, her company says, software revenue will be at least 50 per cent from the cloud, which could challenge the complex way Microsoft prices and discounts its products.

Ms White, of Microsoft, said Google "helped amplify a lot of the conversation around cloud productivity". That is a far cry from last February, when Microsoft put a video on Google's YouTube website lampooning Google with a parody of the old television show Moonlighting.

Google, the video suggested, would automatically change around a buyer's software. But cloud-based software is supposed to issue automatic updates and feature changes. Microsoft has issued several updates to Office 365, though, unlike Google, it lets customers delay the changes for up to a year.

New York Times

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